The bid of US cable giant Comcast, for Sky, which operates in Europe using DTH and OTT video, has run the full gamut of being described as a stroke of genius (by us), widespread US analyst approval and now we are on to despair.
The simple reason is that the share price of Comcast has collapsed by around 20% since the bid was launched. Comcast has not said just how it intends to pay for Sky just yet, but presumably with some element coming from those self-same shares. At least one US analyst, including some who have praised the deal, have now turned full circle and begun to ask if CEO Brian Roberts will change this mind, purely because he might have to use more shares to complete the deal, than he planned originally.
It has been pointed out by analysts such as MoffettNathanson, which has almost as long a memory as we do, that when Comcast was bidding for Disney, way back in 2004. The Comcast share price fell and in the end Roberts pulled out of the deal, concerned he would be paying too much. Well that and Disney was fairly hostile to the deal.
We have already pointed out that Comcast really has no business bidding for a company that uses an entirely different physical platform for broadcasting – satellite not cable – but that Sky’s content holdings and its bold plan to embrace OTT delivery, does give NBC-U some wonderful distribution opportunities.
But as an act that prevents Disney from getting everything it wants from buying Fox in the US, including 39% of Sky, it served a good purpose to hobble Disney – who must be seen as a direct rival to NBC-U. If all Comcast wanted was to kill that deal, then it must keep its foot on the Sky deal accelerator, regardless what happens to its share price, and keeps talking up the prey.
If it can convince Disney to call off its Fox deal, it can then swoop for Fox, and if that deals gets killed because shareholders are unhappy, and the Comcast share price stays low, then it can abandon that deal too, and then it’s Disney’s move. But the chance is that by then Disney will have lost a few years and the opportunity will be gone.
On the other hand if Comcast really, really wants to own Sky for a play in Europe, it should probably listen to its investors and drop the deal, much as it did in 2004 when it bid $54 billion for Disney.
What is interesting is how little the US investment analysts know about Sky. It’s not just a good company, it’s a great company. It has pay TV dominance in the UK and has attracted more than 50% of the customers that Comcast has in the US, from a tiny 25 million home country like the UK, about 20% the size of the US.
And while it has failed to keep Netflix at bay and has just opened up its operations to include a distribution deal with Netflix, it did launch very early into TV Everywhere (2005), and then established both an SVoD (Now TV) and a sell thru’ business (Sky Store) while Netflix was pushing into the UK. It has now repeated most of this in Italy and Germany and is launching purely OTT in Switzerland and Spain. With its investments in other OTT services such as Molotov in France and HotStar in India (owned via Fox), it is the perfect partner for moving purely out of the US into global OTT markets.
But curiously Comcast has never said that it wants to move out of the US, and it has never embraced OTT properly there. We can understand why US finance analysts are concerned or even a little confused. Where was this Comcast interest before Disney cut a deal with Rupert Murdoch?
For our money we believe that if Comcast really wants the Fox business, it should come in the front door like Disney, not try to see off the deal by stealing one of its prime assets from under its nose. Neither Rupert Murdoch nor Iger are stupid, and if Comcast does not have sufficiently loyal investors to stay the course, they will just wait Comcast out.
We fully expect the difficultly of running European media assets will show on either Disney or Comcast, whoever wins out, at some point, and that the move will essentially backfire. It’s just a case of who it will backfire on. Iger is taking on a completely unknown route to market outside of its home territory, and so too is Roberts – media markets in Europe are slower to change than the US, and patience will be the key and certainly Comcast shareholders don’t have it.